How Scrap Affects Job Cost

You can scrap pieces of the parent item on a job by entering the scrapped quantity in the Scrapped field when entering a job transaction. How the scrapping of pieces impacts the costing on the job depends on whether the item is actual or standard costed.

Actual Costing

For actual-costed items, scrapping pieces affects the cost at which the good pieces are moved into inventory.

If you close the job when you move the pieces into inventory, the job's actual total cost is spread over the move quantity; therefore, those pieces absorb the cost of the material and labor that went into the scrapped pieces. For example, suppose that with a job for a quantity of 10, you post $1000 against the job and completed and moved 8 into inventory, while scrapping 2. Those 8 would be moved to inventory at $125 per unit (1000 / 8).
If you do not close the job as part of the move, the completed pieces are moved using the job's planned unit cost. If you then close the job manually, the cost left in WIP is written off to inventory adjustment and will include the cost that went into the scrapped pieces.

Standard Costing

For standard-costed items, scrapping pieces does not affect the move-to-stock cost (which is always done at the item's standard cost), but it does result in variances. Any actual labor you posted for work on the scrapped pieces goes into labor usage variance. All material issued for the scrapped pieces goes to material usage variance.

Example

Suppose you have an item with one standard operation that has 1 hour per piece with a run rate of $15. There is one material in its BOM with a standard cost of $10, giving the item a standard cost of $25. You then release a job for 10 and issue 10 of the material. WIP is debited and the material's inventory account is credited $100.

You post a run transaction for 10 hours that completes 8 and scraps 2, and the employee's rate is $15. WIP labor is debited with the labor to make the 8 pieces ($120), direct labor applied is credited with the actual labor ($150) and labor usage variance is debited with the difference ($30).

The 8 good pieces are moved into inventory and taken out of WIP at its standard cost of $25 (total $200). The remaining $20 in WIP is the value of the material that went into the 2 scrapped pieces of the parent. When you close the job, that scrap is written off to material usage variance.